Regulatory Outlook | Consumer Finance | February 2020

Written on 26 Feb 2020

Current issues

Retail finance providers in the FCA’s sights

On 29 January 2020, the Financial Conduct Authority (FCA) published a portfolio strategy letter aimed at firms operating in the retail finance space. The FCA is concerned that many of these firms do not always adequately understand, or are not sufficiently focussed on, the interests of their credit customers, and are poor at recognising consumer vulnerabilities and assessing affordability.

The FCA’s retail finance strategy covers the period to March 2021 and firms should be aware that the regulator may come knocking on their door to assess whether the CEO, other senior managers and the firm as a whole are taking reasonable steps to mitigate risk of harm and remedy any harms that have occurred.

Mortgage advice and selling standards

On 31 January 2020, the FCA published a policy statement setting out its final rules and guidance relating to changes to giving mortgage advice and selling standards. The changes made in the policy statement make it easier for firms to present options to consumers without giving regulated advice, and help firms make execution-only sales channels easier to use.

Open Finance to transform financial services

On 17 December 2019 the FCA launched a “call for input” on the opportunities presented by “open finance”. The evolution of open finance will be relevant to all firms that provide products and payment services to consumers. It is a strategic priority for the FCA, and envisages a wider range of data being shared by product providers to verified third parties. This includes data in relation to consumer credit, such as: product information (features, fees or charges and other terms); credit amounts, limits and balances; and payment and usage history.

The FCA is seeking feedback by 17 March 2020 and will publish a feedback statement in summer 2020.

New rules in effect on cross-border payments

On 16 December 2019, new EU rules came into effect ensuring that all cross-border payments in euro in non-eurozone Member States – Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Iceland, Liechtenstein, Norway, Poland, Romania, Sweden and the United Kingdom – will be priced the same as domestic payments.

Payment service providers must therefore ensure that all cross-border payments in euro in non-eurozone states are priced the same as domestic payments.

In Focus | Responsible business

Which aspects of responsible business are driving the regulatory agenda?

Ensuring that markets work well and provide fair outcomes for longstanding and vulnerable consumers continues to be a key priority for UK regulators. While significant progress has been made, the FCA is concerned that in some cases firms are still failing to consider the needs of consumers who are most at risk. As a result, the FCA is calling for more consistency across the financial services sector and is considering how it regulates and supervises firms to improve outcomes for consumers.

This work is being carried out alongside the FCA’s approach to fair pricing in financial services and its current consultation on guidance for firms on the fair treatment of vulnerable customers. In addition, following the FCA’s High Cost Credit Review, new rules aimed at improving customer engagement and awareness of overdrafts (and reduce repeat use) came into force on 18 December 2019. The remaining overdraft rules which seek to simplify the pricing of all overdrafts and end higher prices for unarranged overdrafts come into force on 6 April 2020.

Are responsible business considerations having an impact on the tools that regulators are using?

The FCA’s proposed guidance for firms on the fair treatment of vulnerable customers does not aim to provide a checklist of required actions; rather, the FCA’s objective is to provide options for ways in which firms can comply with their overarching Principles for Business. This allows individual firms to apply the guidance in a way that is reflective of their specific context, taking into account their size, the markets they operate in and the characteristics of their customers.

Ultimately, the FCA wants to see firms doing the right thing for vulnerable consumers and embedding this in their culture. The draft guidance gives the FCA’s view on what its Principles for Businesses require of firms to treat vulnerable consumers fairly.

Which of the recent or upcoming developments are based on international consensus or agreements?

While the FCA has drawn upon international experiences to help identify underlying harm to consumers and tackle it in an imaginative and collaborative way, the UK’s regulatory approach to tackling the specific issue of vulnerable consumers has largely been UK-driven.

For example, the House of Commons Committee of Public Accounts report on Consumer Protection, the House of Lords Select Committee on Financial Exclusion, the Department for Business and the Energy and Industrial Strategy Consumer green paper and, more recently, an inquiry by the Treasury Select Committee, all identify areas where UK regulators could do more to address consumer vulnerability in their sectors.

What are the main challenges for businesses in complying with these developments?

Firms will need to assess their current policies and procedures to identify where improvements can be made to embed true cultural change. This will involve looking at product and service design, accessibility requirements, communication channels and every aspect of the business that may be used by vulnerable customers. They will need to build in a process to monitor the outcomes experienced by vulnerable consumers and learn from this continuously, using critical self-reflection to deliver ongoing improvements.

The FCA has adopted a wide definition of what constitutes a “vulnerable consumer” since vulnerability can result from multiple challenges. Firms will therefore need to ensure that their staff have the requisite skills and capability to address the needs of these consumers. Professional training that focuses on dealing with vulnerable customers should be made a priority for firms. Time and resource will be a crucial factor for firms, and having more staff available to deal with routine, day-to-day matters will allow specialist teams to focus on and deliver appropriately enhanced services to vulnerable consumers.

Dates for the diary

6 April 2020 The FCA’s final rules apply in relation to its overdraft pricing remedies as set out in PS19/16, as part of the FCA’s broader review of high-cost credit.
9 April 2020 Deadline for responses to FCA consultation paper ‘CP20/1: Introducing a Single Easy Access Rate for cash savings’.
April 2020 FCA to start review of the rent-to-own price cap.